I’m searching for the best recession-proof stocks to buy as economic conditions worsen. Here are two big-dividend-paying shares on my shopping list today. Obviously, nothing is absolutely guaranteed to be recession-proof, but I think these have a good chance.
Motoring on
The general insurance sector is one that’s historically proven resilient even during recessions. It’s why I’m considering buying Direct Line Insurance Group (LSE: DLG) shares today.
Direct Line product lines include travel, home, pet, cycle, and a range of other insurances. But what I really like about the business is its titanic position in the motor insurance market.
Drivers are, of course, legally obligated to be insured when out on the road. And this provides Direct Line investors with an added layer of security. The FTSE 250 firm is the country’s third-biggest car insurance provider with a share of some 12%.
Intense competition poses a significant threat to insurance businesses today. But, fortunately for Direct Line, it has strong brand power that gives it a considerable advantage against this danger.
Inflation-beating dividend yields
City analysts believe Direct Line will continue growing earnings despite the deteriorating economy. They think profits will rise 5% and 10% in 2022 and 2023 respectively.
These forecasts leave Direct Line shares looking really cheap too. At 245p per share, the insurer trades on a rock-bottom forward price-to-earnings (P/E) ratio of 9.5 times.
What really grabs my attention though is Direct Line’s enormous dividend yields. The business is a formidable cash generator and this enables it to pay dividends far above the market average. Indeed, for 2022, Direct Line’s dividend yield sits at an enormous, inflation-beating 9.4%.
Another recession-proof stock to buy
Residential Secure Income REIT (LSE: RESI) doesn’t offer the same jaw-dropping yields as Direct Line. But at 5%, it still pays better than most FTSE 250 shares (the index’s average forward yield sits at 2.6%).
Residential Secure Income is a provider of private sector social housing and a player in the shared ownership sector. This, in my opinion, makes it a great stock to buy during recessionary times. Paying to have a roof over or heads is one of life’s non-negotiables.
Riding the rentals boom
In fact, a chronic shortage of rental homes mean that Residential Secure Income’s prospects are growing, despite the shrinking economy. Property-listing business Zoopla says that private rents are rising at the fastest rate since the 2008 financial crisis.
The average monthly UK rent hit £995 in the first quarter, up 11% year-on-year.
This explains why, despite the threat to Residential Secure Income posed by rising costs, City analysts think the business will keep growing profits in the short-to-medium term.
The dividend stock’s earnings are expected to soar 25% in 2022 and then rise 4% next year. These readings leave Residential Secure Income trading on a sub-1 price-to-earnings growth (PEG) ratio of just 0.8, too.
This rock-bottom valuation and that large dividend makes the firm — just like Direct Line — a brilliant buy, in my opinion.